While it’s a progressive budget, the steep hike in tax rates for individuals above certain thresholds does not augur well with underlying theme of moderate tax rates and increased voluntary compliance to increase the overall tax base.
“The recent election which brought us to this august House today, was charged with brimming hope and desire for a bright and stable New India." With these opening remarks, the finance minister Nirmala Sitharaman presented the first comprehensive budget of the Modi 2.0 government on 5 July 2019. Amid high expectations, the government had a tough task at hand to balance the expectations and deliver a budget which would put India back on a faster growth trajectory.
The minister acknowledged the contribution of taxpayers and thanked them for their role in the nation-building. Taking a pragmatic approach, the government did not announce any changes in the existing individual tax slab rates, however, various proposals to incentivize investments, ease the compliance burden, widening of tax base, have been proposed in the budget.
Boost to affordable housing
The budget proposes an additional deduction of up to `1.5 lakh for interest paid on loans for purchase of an affordable house subject to satisfaction of following conditions:
•The loan must be taken up to 31 March 2020 i.e. during the FY20.
•The stamp duty value of the residential house does not exceed `45 lakhs.
•Individual should not own any house on the date of sanctioning of loan.
This deduction is in addition to the existing `2 lakh deduction available for mortgage interest on housing loans. The proposal is in line with the flagship initiative of ‘Housing for All by 2022’ of the Indian government.
Disposable funds for pensioners
Under the National Pension Scheme (NPS), an individual can contribute regularly in a pension account during his/her working life. Upon attaining the age of 60 years, the individual is allowed to withdraw up to 60% of the corpus in lump sum out of which 40% was tax exempt and remaining 20% was taxable under the erstwhile tax regime.
It has now been proposed to exempt lump sum amount up to 60% of the total corpus. The proposal to exempt entire lump sum withdrawal of NPS is intended to enable pensioners to have more disposable funds to meet their immediate needs post retirement
Tax incentives on purchase of EVs
To encourage technological development and anticipating the future of auto-mobile industry, the government has brought in a comprehensive proposal to promote the electric vehicles in the country. Accordingly, an additional income tax deduction of `1.5 lakh on the interest paid on loans taken for purchase of electric vehicles subject to the conditions that the taxpayer should not own any other electric vehicle on the date of sanction of loan and the loan should be sanctioned between 1 April 2019 to 31 March 2023.
There are similar proposals to lower the various customs and other duties to provide a boost to electric vehicles industry.
Surcharge on super-rich
One budget proposal that has not gone well with the individual taxpayers is the increase in surcharge on the “super-rich" i.e. individual taxpayers having income exceeding `2 crore. The rate of surcharge on individuals having income from `2 crore to `5 crore has been increased to 25% and for individuals having income exceeding `5 crore to 37%. The existing rate of surcharge on these taxpayers is 15%. Accordingly, the effective tax rates on these taxpayers would reach 39% and 42.74%, respectively.
Taxation on gifts made to NRIs
In order to plug the tax leakages by way of gifts to an individual outside India, it has been proposed that gifts received by an individual residing abroad from an individual residing in India would now come under the tax ambit effective from 5 July 2019, subject to certain exceptions/ treaty reliefs where applicable.
It is pertinent to note that genuine transactions like gifts to close relatives, gifts received on marriage, under a will or inheritance, etc., would continue to be outside the purview of these provisions.
In the interim budget 2019 presented on 1 February 2019, the government announced moving to an anonymized back office scrutiny assessment by tax experts and officials within the next two years.
Going ahead with this, the government has now announced that a scheme of faceless e-assessment in electronic mode involving no human interface shall be launched this year in a phased manner.
It has been announced that under the proposed scheme, cases selected for scrutiny shall be allocated in a random manner and notices shall be issued electronically by a Central Cell, without disclosing the name, designation or location of the tax officer. The Central Cell shall act as the single point of contact between the taxpayer and the department.
This new scheme of assessment will represent a paradigm shift in the functioning of the income tax department and improve transparency.
Ease in compliance
The government has proposed to introduce the feature of a pre-populated tax return forms capturing data such as salary, bank interest, capital gain from securities and dividend. This would not only ease the return filing compliance burden but would also reduce chances of error or omission by the taxpayers.
Widening the tax base
The government has proposed to make it mandatory to furnish the income tax return in case of following ‘high-value transactions’:
•Deposits in current account exceeding `1 crore annually, or
•Expenditure incurred for foreign travel exceeding `2 lakh for self or any other person, or
•Electricity expenditure exceeding `1 lakh in a year, or
•Fulfilment of other conditions as may be prescribed.
The tax return in these cases is to be filed irrespective of the income level of an individual.
In nutshell, the budget focusses on widening and deepening of tax base, promote less cash economy, improving transparency and effectiveness of tax administration and removing difficulties faced by tax payers. A pragmatic approach has been adopted to boost investments, invite foreign investments and lay down a road map of making India a $5 trillion economy over the next five years.
Akhil Chandna and Ajay Arora contributed to this article.
Vikas Vasal is national leader tax-Grant Thornton India LLP